Fluent Essays

Please use Google or Southwest Airlines for this paper as a an example. Attach are some articles. Thank you Choose a company that values organizational culture. Describe what the company did to make its culture better overall, not just a better place to work. (A basic Google search of leading companies should give you ample options to choose from.) Analyze the secret to their success? Address these points in your paper: Describe (briefly) the culture before the company changed its culture. List the steps the company took to change its culture. Describe (briefly) the impact on employees and other statistics such as increased retention rates. Analyze the effectiveness of the steps to change the culture. Evaluate whether the steps were efficient and effective or whether other steps could have been taken. Recommend how these changes could be used in a company whose culture is causing high employee turnover and poor image and detracting from its competitive advantage. Your well-written paper must adhere to the following parameters: Be 4full pages in length, not including the title and reference pages. Be supported by six, with at least four scholarly references. Remember, you must support your thinking/opinions and prior knowledge with references; all facts must be supported; in-text references used throughout the assignment must be included in an APA-formatted reference list. Review the grading rubric within this assignment for more detail on how this assignment will be graded. Be formatted according to the Meets Expectation - Includes all of the required components, as specified in the assignment. Demonstrates strong or adequate knowledge of the materials; correctly represents knowledge from the readings and sources. Provides a strong critical analysis and interpretation of the information given. Sources or examples meet required criteria and are well chosen to provide substance and perspectives on the issue under examination. Project is clearly organized, well written, and in proper format as outlined in the assignment. Strong sentence and paragraph structure; few errors in grammar and spelling. 160 Psychosociological Issues in Human Resource Management 5(1), 2017 pp. 160–175, ISSN 2332-399X, eISSN 2377-0716 doi:10.22381/PIHRM5120175 LEADING WITH COMPASSION: THE KEY TO CHANGING THE ORGANIZATIONAL CULTURE AND ACHIEVING SUCCESS HERSHEY H. FRIEDMAN [email protected] Department of Business Management, Murray Koppelman School of Business, Brooklyn College, City University of New York MIRIAM GERSTEIN [email protected] Department of Accounting, Murray Koppelman School of Business, Brooklyn College, City University of New York ABSTRACT. There is a leadership crisis in the world today that is affecting government, business, and education. Young people and Millennials are especially troubled over the lack of values displayed by leaders. This paper demonstrates why it is important for organizations to practice compassion, empathy, and caring and make them core values. This means that organizations that want to thrive must be run by compassionate leaders. A culture of compassion and caring must permeate the entire organization. This is especially crucial in toxic organizations and/or where employees are disengaged. JEL codes: D73; L2; J21 Keywords: leadership; compassion; corporate fraud; accounting scandals; care ethics; Conscious Capitalism; empathy How to cite: Friedman, Hershey H., and Miriam Gerstein (2017), “Leading with Compassion: The Key to Changing the Organizational Culture and Achieving Success,” Psychosociological Issues in Human Resource Management 5(1): 160–175. Received 13 July 2016 • Received in revised form 13 August 2016 Accepted 13 August 2016 • Available online 30 August 2016 161 Introduction There is a leadership crisis in the world today that is affecting government, business, and education. Young people are especially troubled over the lack of values displayed by leaders. Corporate leaders seem to be only concerned about finding ways to inflate their own salaries than in ensuring fair wages for employees. Of course, this does not stop CEOs from milking their firms. According to the World Economic Forum (2014) study: Most people’s understanding of a lack of values in leadership probably relates to the problem of leaders simply caring about their own interests, rather than being motivated by something more worthwhile. We expect leaders not to just stick to what they know, but to be driven by something that moves us forward and brings people together. And so, in reality, the concern is that there’s not enough sharing of views, values and vision (World Economic Forum, 2014). Despite all the talk about corporate social responsibility and business ethics, corporate leaders appear to be only interested in maximizing their own salaries rather than in ensuring fair wages for employees. Top CEOs now make approximately 300 times more than the typical employee (Mishel & Davis, 2015a). It appears that CEOs are reaping the rewards when they have little to do with successful performance of their companies; luck or chance usually has a greater effect on firm performance than the CEO’s talents (Fitza, 2013). Chance appears to account for 70% of corporate performance. One study examining compensation among the top 200 companies using return on capital as a measure of CEO performance found that 74 out of the 200 firms overpaid their CEOs (Morgenson, 2016). CEO pay is up 997% since 1978 (Mishel & Davis, 2015b). The median real salary (adjusted for inflation) of American male workers is $726 less per year than in 1973; women are making $1,154 less than in 1977 (Sanders, 2016). The employment-population ratio, which is probably a more important measure than the unemployment rate, was above 63% before the Great Re- cession of 2008 and is currently at 59.7% (http://data.bls.gov/timeseries/ LNS12300000). This does not bode well for the future. Corporate fraud is a serious problem. In the United States, a single type of corporate fraud involving corporate securities has been estimated to net its perpetrators $380 billion annually (Tillman & Pontell, 2016). Tillman & Pontell (2016) feel that corporations are not afraid of committing fraud for the following reason: Theories of deterrence are based on a simple idea: that criminals, either individuals or corporations, behave rationally, weighing their actions against possible gains and consequences. To stop crime, 162 we need to tip that calculation in society’s favor. Phil Angelides, the former chairman of the Financial Crisis Inquiry Commission, which examined the causes of the 2008 financial collapse, said the relatively small fines paid by corporations are ‘akin to someone who robs a 7-Eleven, takes $1,000 and being able to settle for $25 and no admission of wrongdoing.’ He added, ‘Will they do it again? Absolutely, because it pays’ (Tillman & Pontell, 2016). The accounting industry has also been complicit in many of the scandals that have rocked the corporate world. Toshiba recently joined a long list of firms responsible for corporate accounting/financial scandals that includes BCCI, Enron, Olympus, Tyco International, Lehman Brothers, Royal Bank of Scotland, and Tesco (Farrell, 2015). The SEC filed 99 accounting-fraud investigations (a 46% increase from the previous year) in the fiscal year that ended September 30, 2014. In 2015, they started more than 100 investigations (Eaglesham & Rapoport, 2015). The Institute of Internal Auditors (2012) states the following regarding the crucial need for auditors to create a cor- porate culture where ethical decisions are made. What rationalization does a company make to justify a corporate culture where ethics are ignored? In recent years, greed, fraud, and a lack of ethical conduct have led to the collapse of many organiza- tions. A variety of internal and external pressures can lead com- panies down the wrong path. And once the first misstep is taken, it’s a slippery slope to hurting stakeholders, the community, and your reputation (The Institute of Internal Auditors, 2012). One reason given for all the accounting scandals is the pressure to achieve financial targets: Bonuses and share options are often linked to hitting particular targets and these pressures may entice executives to engage in creative accounting. Companies can also manage their operations by delaying investments or selling assets to reach certain goals. As long as there are market pressures, we can expect some firms to resort to creative accounting to shore up their performance (Farrell, 2015). Greed and a lack of fear of being punished may explain why a company such as Volkswagen was willing to cheat on emissions tests for its diesel cars. This dishonesty will cost the company at least $14.7 billion dollars in the United States alone and a tarnished reputation. There is talk of a criminal investigation of Volkswagen (Ewing & Tabuchi, 2016). Takata, a major airbag manufacturer, is in danger of going bankrupt for selling airbags that can explode. Its airbags have been linked to more than 100 injuries and 14 deaths. So far, 60 million vehicles have been recalled in the United States alone. The company is looking for a “white knight” to provide funds and 163 rescue it. Shigehisa Takada, CEO and grandson of the founder, has been criticized as an ineffective leader and has told shareholders that he will step down. The most he has so far done was apologize to the victims while continuing to claim that the airbags manufactured by his company wer e “fundamentally safe” (Soble, 2016). Government is also responsible for many of the problems facing this country. Gilens & Page (2014) examined more than 1,800 U.S. policies and assert that the United States political system does not serve the interest of the majority of Americans. Rather, it serves the needs of special interests such as corporations and hence the country resembles an oligarchy more than a democracy. One example that illustrates this is the problem of lead in the water supply of Flint, Michigan, where 4.9% of children tested have elevated lead levels (Hanna-Attisha et al., 2015). Unfortunately, the problem is much bigger than that and, according to the Centers for Disease Control and Prevention, 535,000 American children suffer from lead poisoning. This is due to greed on the part of the lead industry that fought against several anti- lead programs (Kristof, 2016). The Deloitte Millennial Survey (Deloitte, 2016) involved 7,700 Millennials from 29 countries. The study showed that 66% of Millennials expect to leave their organizations by 2020. This indicates that many are not happy with their current jobs. Another key finding dealt with values: So, to better understand their values, we asked Millennials, ‘What are the most important values a business should follow if it is to have long-term success?’ They responded that businesses should put employees first, and they should have a solid foundation of trust and integrity. Customer care and high-quality, reliable products also ranked relatively high in importance. Attention to the environ- ment and social responsibility were also mentioned by a significant number of Millennials. It’s noteworthy that few (5 percent) of those answering thought profit-focused values would ensure long-term success (Deloitte, 2016). It is clear that Millennials strongly believe that “business success is built on a foundation of long-term sustainability rather than pursuing short-term profit maximization” (Deloitte, 2016). They want firms to put people before profits. What this means is that firms that want to retain the best employees need to hire new kinds of leaders. This paper will examine the kind of lead- ership that is needed for the creative economy with a workforce consisting mainly of Millennials. Scalise (2007: 51) believes that “compassion is a new paradigm in which to understand economic, political, and cultural relationships.” One of the big surprises of the current presidential race in the United States is how much Donald Trump and Bernie Sanders have in common. Numerous articles have 164 been written about this subject. The main thing these voters have in common is the belief that: “The system is rigged. Your elected leaders are working for themselves and their puppet-masters. They couldn’t care less about you” (Robinson, 2016). It is becoming more and more obvious that many Amer- icans feel that the established political parties have no interest in helping them, i.e., have no compassion for the working individual who is struggling to earn a living, and are only going through the motions of pretending that they will bring about constructive change. Several politicians have compared the Top 1% with the Bottom 99% and are that it is time for the United States to do something to help everyone, not just “the 1%.” Why Leaders Must Have Compassion There are many traits leaders must have in order to successfully lead an organization or country. Traits that are discussed in the literature include trustworthiness, expertise, and vision (Kouzes & Posner, 2010). Untrust- worthiness is a major cause of leadership failure (Kouzes & Posner, 2010; Nahavandi, 2003:79). One trait that may be just as important is compassion, which translates into empathy and concern for employees, customers, and society. First, let us attempt to define compassion. Strauss et al. (2016) examined the literature and found that there is a lack of consensus regarding the definition of compassion. However, they come up with a five-element definition that includes the following components: “recognizing suffering in others; understanding the common humanity of this suffering; feeling emotionally connected with the person who is suffering, tolerating difficult feelings that may arise; and acting or being motivated to help the person.” They admit that no single definition in the literature includes all five of these components. Cherry (2014) provides a definition that might be of value. Compassion is much more than just concern or empathy. Empathy involves the ability to feel the emotions that another person must be experiencing, but compassion is fueled by wanting to actually take action to help the other individual. One definition of com- passion suggests that it is a ‘deep feeling for and understanding of misery or suffering and the concomitant desire to promote its alleviation’ (Cherry, 2014). Analysis of an assessment instrument that measures empathy and com- passion of college students shows that concern for the well-being of others has been tumbling since the early 1990s and is currently at the lowest point in the last 30 years (Desteno, 2015). It is not clear why this is happening. Research by Cassell (2009) cited in Cherry (2014) indicates that there are three requirements for a person to feel compassion: “The problem must be 165 serious; the individual’s problems cannot be self-inflicted; and the observer must be able to identify with the victim’s suffering.” There may not be a perfect definition available for compassion but there is no question that it is recognized as an important construct in many areas including healthcare, education, and justice. This paper argues that it is also important in business. Shahzad & Muller (2016) suggest that many scholars in the area of organization behavior see justice and compassion as incompatible. This does not have to be the case. In fact, compassion can be the secret ingredient that makes an organization thrive (Dutton & Workman, 2015; Dutton, Workman & Hardin, 2014; Frost, 1999). Peter Frost was among the first scholars to demonstrate that compassion will not interfere with the productivity and effi- ciency of an organization and will actually improve them (Frost, 1999). This is why an organization that wants to succeed should strive to be compas- sionate. Frost relates the story where he was in the hospital and witnessed a nurse going out of her way to comfort a patient who was “humiliated, depressed, [and] defeated.” This action was not only beneficial for the patient but helped the morale of the entire organization. As Dutton & Workman (2015) assert: “Certain types of positive experiences, like giving, receiving, or witnessing compassion, may activate positive spirals, increasing positive effects.” The research on compassion is evocative of the theory of care ethics developed by Held (2006). Held believes that society cannot function properly if it is solely based on the profit-motive. Held (1993: 228–229) contends that “Many enterprises would gain if they resembled families more and groups of hostile strangers less.” She argues that “the markets are unable to reflect and actively advance values beyond the economic, such as mutually shared care and concern” (Hawk, 2011). Thus, care ethics is about introducing compassion and caring into society. A compassionate workplace is very beneficial in providing grief support after an employee experiences a loss or another kind of misfortune. Support from coworkers can help with a more rapid recovery (Tehan & Robinson, 2009). Neubert et al. (2015) examine what they call spiritual capital measured by how subjects respond to statements such as “I feel the presence of God or Allah in my relationships” and “I feel a deep sense of responsibility to reduce pain and suffering in the world.” The second question is essentially a measure of compassion. Surveying subjects who had received microfinance loans in Kenya and Indonesia, they find a significant relationship between spiritual capital and innovativeness and success in business. Compassionate love has been seen as an antecedent for servant leadership (van Dierendonck & Patterson, 2013). Capitalism and compassion are not mutually exclusive. Adam Smith, the father of capitalism, understood that capitalism could not function well 166 without benevolence and regulation. Adam Smith believed in the importance of morality and virtue and thought that the virtue of benevolence had the ability to counteract our most powerful selfish desires. In fact, he was con- fident that people would be willing to sacrifice their own selfish interests in order to help others (Gregoire, 2014). Smith understood that money and fame alone would not lead to happiness, which can only come from being loved, appreciated, and respected. Economist Russ Roberts called Smith’s The Theory of Moral Sentiments a “road map to happiness, goodness, and self-knowledge” (Gregoire, 2014). Amartya Sen, Nobel Laureate and renowned economist, and others see Smith’s two works – The Theory of Moral Sentiments and The Wealth of Nations – as complementing each other: capitalism only works when combined with ethics and morality. Unfortunately, Smith’s philosophy has been distorted by people who insist that he believed in unfettered, predatory capitalism without a moral foundation. Sen (2010) was opposed to the idea of separating ethics from economics: Second, since the ideas presented in The Wealth of Nations have been interpreted largely without reference to the framework already developed in Moral Sentiment (on which Smith draws substantially in the later book), the typical understanding of The Wealth of Nations has been constrained, to the detriment of economics as a subject. The neglect applies, among other issues, to the appreciation of the demands of rationality, the need for recognising the plurality of human motivations, the connections between ethics and economics, and the codependent rather than free-standing role of institutions in general, and free markets in particular, in the func- tioning of the economy (Sen, 2010). What Smith actually stated in The Theory of Moral Sentiments (1759) was that economic growth depended on morality: Man… ought to regard himself, not as something separated and detached, but as a citizen of the world, a member of the vast com- monwealth of nature and to the interest of this great community, he ought at all times to be willing that his own little interest should be sacrificed. Robinson (2007) makes it very clear that Adam Smith did not believe that the human motive of profit maximization is a substitute for morality. Adam Smith believed in a natural order of morality. When man was formed for society he was endowed with the moral sentiments which would make society possible. But the second part of his doctrine, the “Wealth of Nations,” has succeeded in undermining those sentiments to a very considerable extent and putting in their place the doctrine that the pursuit of profit is a substitute for 167 morality… I hope that the moral consciousness which has grown up in modern times in the youth of America, which has led them to protest against the unequal balance prevailing between morality and the market, will continue to prosper in this generation and that you will find that the doctrines of Adam Smith are not to be taken in the form in which your professors are explaining them to you (Robinson, 2007). Even Alan Greenspan, former chair of the Federal Reserve who has been called the “maestro of capitalism,” changed his views regarding laissez-faire capitalism once he saw how it nearly caused the collapse of the world financial system. The incredible risks taken by companies to increase bonuses for executives by issuing trillions of dollars of credit default swaps should have convinced the worst economists that unadulterated greed and self-interest is a formula for economic disaster. Greenspan actually said that he was “in a state of shocked disbelief” and that “I’ve found a flaw, I’ve been very distressed by the fact” (Porter, 2016). The flaw he found was that capitalism based solely on greed and unfettered markets does not work, which Adam Smith had recognized over two centuries earlier. Models based on the mistaken belief that people are entirely driven by self-interest are wrong. There is quite a bit of evidence that people are altruistic and enjoy helping each other (Ricard, 2015). Several studies (and a 2000 film starring Kevin Spacey based on a book by Catherine Ryan Hyde) demonstrate what happens when people are on the receiving end of a kindness; they pay-it-forward. If people were only motivated by self-interest, there is no reason for this kind of behavior. Pay-it-forward is basically a chain of goodwill. Normally, we expect to return a favor (reciprocity) to the person who did something good for us. When paying it forward, the favor is paid back to someone else, a stranger, not the same person who helped us. Thus, if one driver pays the toll for the next driver in line, that individual pays for the next driver, and so on (Norton, 2014). There is a dark side to pay-it- forward. People who are treated poorly, will also respond in a negative way to others. In fact, “bad behavior leaves more of an impression on us than good” and “people pay greed forward as a means of dealing with negative emotions that being treated badly engender. If I can’t pay you back for being a jerk, my only option for feeling better is to be a jerk to someone else” (Norton, 2014). Brooks (2016) challenges the views of classical economics and states: By assuming that people are selfish, by prioritizing arrangements based on selfishness, we have encouraged selfish frames of mind. Maybe it’s time to upend classical economics and political science. Maybe it’s time to build institutions that harness people’s natural longing to do good. 168 Compassion is a trait that can help a company flourish (Fox, 2010). Seppӓlӓ (2016), author of The Happiness Track, avers that “compassion is good for the bottom line, it’s great for your relationships and it inspires lasting loyalty. In addition, compassion significantly boosts your health.” Moreover, “the more compassionate the workplace, the higher the performance in profit- ability, productivity, customer satisfaction and employee engagement” (Global Focus, 2016). Williams (2012) also makes a compelling argument that companies that seek to thrive need leaders with kindness, compassion and empathy. Com- passionate leadership is correlated with a 27% reduction in sick leave and a 46% reduction in disability pensions (Williams, 2012). Baker & O’Malley (2008) also argue that a management style that combines the traits of com- passion, gratitude, authenticity, humility, humor, and integrity will improve employee retention and employee performance and thereby improve the bottom line. According to Tischler (2007), autocratic CEOs are not effective leaders. In fact, “Farsighted, tolerant, humane and practical CEOs returned 758% over 10 years, versus 128% for the S&P 500” (Tischler, 2007). Boedker conducted a major study in Australia involving 5,600 people in 77 organizations examining the link between profitability and leadership styles. He found that compassionate leadership had the greatest influence on productivity and profitability. The study defined compassionate leadership as the ability of leaders to value people and “to spend more time and effort developing and recognising their people, welcoming feedback, including criticism, and fostering co-operation among staff.” It also includes a desire “to understand people’s motivators, hopes and difficulties and to create the right support mechanism to allow people to be as good as they can be” (Business Think, 2012). Ton (2014) examined several retailing firms and found that successful firms thrived by paying fair wages and respecting employees. Indeed, one retailer that took such a people-centered management approach achieved an annual turnover of 4% of employees, which is virtually unheard of for a retailer. Seppӓlӓ (2013) posits that managers often make the blunder of thinking that placing pressure on employees is the best way to get them to maximize performance. Actually, this approach often boomerangs and in- creases stress which has an adverse effect on health and performance. Research shows that many employees will look for another job because of stress and that they will remain loyal to their firm if they experience fairness and altruism in the workplace: Seppala cites Haidt’s work as demonstrating that: seeing someone help another person creates a heightened state of well-being that Haidt calls “elevation.” Not only do we feel 169 elevation when we watch a compassionate act, but we are then more likely to act with compassion ourselves. When Haidt and his colleagues applied his research to a business setting, he found that when leaders were fair and self-sacrificing, their employees would experience elevation. As a consequence, they felt more loyal and committed and were more likely to act in a helpful and friendly way with other employees for no particular reason. In other words, if a manager is service-oriented and ethical, he is more likely to make his employees follow suit and to increase their commitment to him or her. Elevation may even be a driving force behind creating a culture of compassion and kindness, whether in a workplace or in society at large. Social scientists James Fowler of UC San Diego and Nicolas Christakis of Harvard have demonstrated that helping is contagious: Acts of generosity, compassion, and kindness beget more generosity in a chain reaction of goodness. This is how culture is formed (Seppӓlӓ, 2013). Can People Be Taught to Be Compassionate? Gerstein & Friedman (2016) list “empathy and compassion” as important skills that should be taught in higher education as well as K-12. They posit that these skills should also be taught in accounting programs. Cherry (2016) cites published research that demonstrates that adults can be taught to be more compassionate. A technique that can be used to teach compassion is com- passionate meditation, whose purpose is to produce caring feelings for other people who are suffering (Association for Psychological Science, 2013; Condon, Desbordes, Miller & DeSteno, 2013; Desteno, 2015). Kim & Shy (2015) feel that an increasing number of companies believe that mindfulness is crucial for successful management. This is the reason NYU offers mini-courses, lectures, and symposiums as part of the Mindfulness in Business Initiative (MiB) to MBA students. Students are taught the funda- mentals of mindful leadership which includes creativity and compassion. Discussion Compassion has been recognized as an important virtue in most of the world’s religions and is often a core value of most belief systems (Strauss et al., 2016). One of the biggest obstacles to creating a compassionate organization is the use of the machine paradigm which treats people as “automated cogs carrying out rigidly prescribed activities, creating a system that is intrinsically dehumanizing, and paradoxically inefficient” (de Zulueta, 2016). This may 170 have much to do with Taylor’s (1911) outdated theory of scientific manage- ment which is over 100 years old and makes no sense in the knowledge- intensive economy (de Zulueta, 2016). The idea that compassion is a critical trait for an effective leader has been expressed in Scripture thousands of years ago. In Psalm 72, King David, prays that Solomon, his son and successor, will do what it takes to be a successful ruler. The Psalm perfectly describes the mission of a king, the ultimate leader. It underscores that a successful leader is concerned with helping the weak and defenseless members of society and must have com- passion for the poor. Please help the king to be honest and fair just like you, our God. Let him be honest and fair with all Your people, especially the poor. Let peace and justice rule every mountain and hill. Let the king defend the poor, rescue the homeless, and crush everyone who hurts them (Psalm 72: 1–4). The Book of Proverbs stresses the importance of kindness, compassion, and justice for sustained leadership and characterizes greed as a trait that shortens a ruler’s reign: Kindness and truth preserve a king; and by kindness he upholds his throne (Proverbs 20:28). A ruler who lacks understanding is a great oppressor, but one who hates covetousness will prolong his days (Proverbs 28:16). Brooks (2014) observes that “Capitalism on its own breeds people who are vaguely aware that they are not living the spiritually richest life, who are ill- equipped to know how they might do so…” Brooks concludes that capitalism without spiritual values such as ethics, integrity and compassion results in a corrupt, cruel and unforgiving society. This is what we are seeing … 14 JULY/AUGUST n 2018 3 KEYS TO EFFECTIVE CULTURE CHANGE THE CHALLENGE: Culture is a point of pride for most organizations. You’ll read articles or listen to interviews in which CEOs and department heads boast about their company’s “culture of empowerment” or “culture of learning” or “culture of whatever.” Culture influences everything: productivity, turnover, succession planning, communication, quality of care. The most well-managed organizations in health care aren’t necessarily the most talented or visionary, but they almost certainly have strong cultures. So how do you build a culture you can boast about on a podcast or at a conference? You promote and reward the behavior you want to see more of. You sanction the behavior you want to see less of. And you do this consistently for years. But there are a few measures you should put into place first. 1. DEFINE “UNDESIRED BEHAVIOR” You can’t consistently punish bad behavior if you don’t know what bad behavior looks like. For example, if an employee makes an honest mistake while helping a peer … is that undesired? Should you punish her? Do you want her to stop being helpful? Conversely, if a delinquent employee acts recklessly — but somehow accomplishes his goal — do you reward him? Is that the type of behavior you want to condone? It’s a difficult question, and it’s why many organizations are more concerned with the intent of an action, instead of its outcome. n Honest mistakes are forgiven. n Risky behavior is discouraged. n Recklessness is harshly sanctioned. 2. SECOND, SELECT AN IMPARTIAL JUDGE Another thing to think about — who gets to choose the consequences for undesired behavior? Who’s the judge? Who dishes out punishment to transgressors? It probably shouldn’t be you. Chances are, an organization of more than 15 people will need several judges. And they should all meet two criteria: n Each judge should be totally unaffected by the bad behavior. n Each judge should be intimately familiar with the transgressor’s work. Victims shouldn’t judge perpetrators. Similarly, uninformed outsiders shouldn’t judge the behavior of an insider. 3. INSTALL AN APPELLATE SYSTEM People aren’t perfect. Mistakes happen. And that’s true for your judge, too. That’s why you need an appellate system. The transgressor, regardless of his or her behavior, must have an opportunity to share his or her side of the story. THE BOTTOM LINE: When these three considerations are working in unison — defined behavior, impartial judges and an appellate system — culture actually will begin to self-correct. Employees become more willing to innovate, collaborate and drive the organization forward. Coffee Break Course A quick takeaway to help you hone your leadership skills. Adapted from Establish a Just Culture, part of the American Association for Physician Leadership’s comprehensive online curriculum. More about our educational offerings and credentials at physicianleaders.org/education. Reproduced with permission of copyright owner. Further reproduction prohibited without permission. 28 Management Services Spring 2015 Culture change In this edition of Management Services, Cliff Moyce talks about the risks and rewards of attempting culture change in an organisation. 29Management Services Spring 2015 C ulture change is arguably the most powerful tool for transforming businesses, but it is also one of the least well understood. Without it, many well documented company turnarounds would not have happened (eg the transformation of Marks & Spencer under Stuart Rose). Of all the varieties of business change, it is culture change that delivers the most important outcomes. However, it can be the riskiest and most demanding type of change, and if done badly it can make things worse. Despite the fluffy name, culture change has been described as a ‘brutal’ process (Burnes, 2009). Brutal, because if you accept that culture is embodied in the values, beliefs and behaviours of the individuals in an organisation, then you also accept that not everyone will fit into the new culture. Culture change almost always results in some members of staff leaving and being replaced by people who are believed to better embody the new culture. Of course, it would be better if all the current personnel were to adopt the new culture, but it happens rarely. And this is for a good reason – culture is people. There are many definitions of organisational culture. Some are more useful than others. Simple and accurate is ‘how things are done around here’ (Drennan, 1992). Another is ‘... a pattern of beliefs and expectations shared by the organisation’s members. These beliefs and expectations produce norms and powerfully shape the behaviour of individuals and groups in the organisation.’ (Schwartz and Davis, 1981). It is the way culture shapes behaviours that is the most important factor for those of us trying to improve performance in organisations. Productivity improvement isn’t just about method improvement and work design, it’s about people as well. Some writers argue that many companies lack a cohesive culture that binds them together, and it is this lack of cohesion that causes them problems. Similarly, the success of Japanese companies in the 1970s and 1980s was attributed in large part to them having strong and cohesive cultures. Even though the production management and productivity improvement techniques being used in Japan were imported from the USA, it was the ability of Japanese companies to embed those approaches into the culture, that separated them from western competitors. So what types of culture exist? Charles Handy (1986; as cited in Burnes, 2009) suggested power culture (one or more powerful figures at the top wielding control); role culture (bureaucratic, mechanistic and rigid with people sticking to their job descriptions); task culture (a focus on getting the job done in which individual contributions are valued more than job titles); and, a person culture (minimal structure with everyone focused on keeping one senior person happy). These archetypes do a good job of suggesting how it might feel to work in those cultures, but they don’t give as good a feel for customer experience (with the exception of role culture – we all know what it is like dealing with a bureaucracy). But before deciding what culture best describes your organisation, bear in mind that differences often exist between claimed and actual cultures; and, between different parts of the same Culture is difficult to change because it is based on deeply held beliefs and values; is well- practised through previously- successful behaviours; and is shaped by powerful organisational norms. organisation (eg the famous head office v local office divide). Unless you live in a country where industries are owned by the state, employee behaviours towards customers will be a major factor in the success your organisation. There is no point claiming in your advertising that you put customers first when you are not answering phone calls; not consulting on planned changes to services and products; and not offering eye contact in face-to-face dealings. Such an organisation will not score highly on customer satisfaction. Talking of which, customer satisfaction surveys are a great way of determining your true culture. Identifying a problem So how do you know if you have a cultural problem in the workplace? Most of us can spot behaviours that are unhelpful or counter-productive and with a little thought, discussion, and analysis, can figure out the faulty or outdated assumptions driving the behaviours. If you are still in doubt as to whether you have culture problem, there are various cultural-risk tools available that guide you on the areas to examine. However, many of them are rather inward facing. A problem with culture usually means the elephant in the room, not a needle in a haystack, so should be easy to spot. Before considering how to go about changing culture for the better, some health warnings need to be considered: Ensure that culture change is really needed. If culture (ie values, beliefs and behaviours) is not a causal factor in your current problems, or is not an obvious barrier to achieving your business goals, then why are you trying to fix it? Do not overstep the mark. Explaining to people what sorts of behaviours will be important from now on (and why) is one thing, but telling them what to think is another. People should always be free to voice their opinions on ‘how things are done around here’ as doing so will keep the culture alive. Don’t take success for granted. Culture is difficult to change because it is based on deeply held beliefs and values; is well- practised through previously-successful behaviours; and is shaped by powerful organisational norms. There are examples of desired culture change taking ten years to achieve. And don’t think that because you are the boss, you are the culture! 30 Management Services Spring 2015 So how to do the changing? My preferred approach is to share how I perceive the problems in the organisation (being careful to distinguish between symptoms and underlying causal factors) and explain how I think it links to culture. For example, what false or outdated assumptions, beliefs or values may be underpinning the way people are behaving, and how by changing those assumptions, there will be an improvement in behaviours. The ensuing discussions and deliberations always add to the analysis and provide further ideas on how to achieve the required change. If new, improved behaviours can be enshrined in formal processes and procedures, then they should be. However, documented processes are often ‘shelfware’ and cultures are sometimes tricky to document. Much better to start demonstrating the new behaviour yourself and encourage others to do the same. When anyone lapses back into the old behaviour, point it out to each other. Once new behaviours have been shown to work, it is time to enshrine them in the professional development, appraisal and selection processes (but I recommend not before). By comparison, textbook approaches can seem rather managerialist and top-down in their approach, and also rather cynical in their manipulation of the composition of the workforce to achieve the desired result. But sometimes desperate situations require desperate measures, so these approaches should be regarded as valid in the right circumstances. One of the best known approaches (Dobson, 1988) recommends: Change recruitment, selection and redundancy policies to alter the composition of the workforce, so that promotion and employment prospects are dependent on those concerned possessing or displaying the beliefs and values the organisation wishes to promote. Reorganise the workforce to ensure that those employees and managers displaying the required traits occupy positions of influence. Communicate the new values. Change systems, procedures and personnel policies, especially those concerned with rewards and appraisals. Dobson’s approach is stark. It starts after any analysis of causal factors such as beliefs, values and behaviours has taken place (assuming that said analysis has taken place at all); and, it takes the bull by the horns in terms of changing the composition of the ‘workforce’. But use of the word ‘workforce’ belies its managerialist bent. In Dobson’s world, the workers are the About the Author Cliff Moyce is an independent management consultant specialising in business transformation. He has taken his skills into financial and professional services, environmental protection and utilities. Cliff is a fellow of the IMS and hold an MSc in organisational psychology from Birkbeck, University of London. Contact via www.cliffmoyce.com or [email protected] Before deciding what culture best describes your organisation, bear in mind that differences often exist between claimed and actual cultures; and, between different parts of the same organisation. problem, not the managers. That is a common, often erroneous and dangerous assumption to make in any organisational situation. Worker v manager distinctions are outmoded and have long since outlived their usefulness. Everyone is managing work to one degree or another in most organisations these days. But Dobson’s approach was developed in the 1980s when managerialist thinking was still the norm (in fact, the culture!). To summarise, culture change is important but risky, and needs to be done well. Its strength comes from its recognition that fundamental values and beliefs drive peoples behaviours at work and it is these behaviours that are the public face of your organisation. For these reasons, organisational leaders and change practitioners should regard culture change as an essential skill. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. What leaders need to know about organizational culture D. D. Warrick Graduate School of Business, University of Colorado, Colorado Springs, 1420 Austin Bluffs Parkway, Colorado Springs, CO 80918, U.S.A. Business Horizons (2017) 60, 395—404 Available online at www.sciencedirect.com ScienceDirect www.elsevier.com/locate/bushor KEYWORDS Organizational culture; Culture building; Organizational leadership; Organizational values; Leadership influence Abstract A major factor in the success of an organization is its culture. Organiza- tional culture can significantly influence the performance and effectiveness of a company; the morale and productivity of its employees; and its ability to attract, motivate, and retain talented people. Unfortunately, many leaders are either unaware of the significant impact culture can have, are aware but overwhelmed by the extensive and sometimes conflicting information available on culture, or are not well informed about how to build and sustain cultures effectively. This article integrates the most consistent findings that leaders need to know about culture and what they can do to build strong, successful cultures that bring out the best in people. Developing organizational culture requires far more than talk about culture and emphasis on its importance. In order to achieve the best results, culture develop- ment requires leaders who see it as one of their key tasks and who understand the importance of aligning organization strategies and decision making with cultural ideals. # 2017 Kelley School of Business, Indiana University. Published by Elsevier Inc. All rights reserved. 1. Culture matters Culture has been the long-time focus of anthropol- ogists as they seek to understand different groups around the globe. However, it has been only recent- ly that organizational researchers have begun to discover the close links between culture, the per- formance of organizations, and the behavior and attitudes of people in organizations. Culture is E-mail address: [email protected] 0007-6813/$ — see front matter # 2017 Kelley School of Business, I http://dx.doi.org/10.1016/j.bushor.2017.01.011 recognized as such a significant factor in the success of organizations that Fortune’s annual 100 Best Companies To Work For report is based primarily on information employees anonymously report about their workplace culture (Levering, 2016). Culture is increasingly becoming a concern of skilled leaders. Tony Hsieh, the CEO of Zappos, has said, “At Zappos, our belief is that if you get the culture right, most of the other stuff–—like great customer service, or building a great long-term brand, or passionate employees and customers–—will happen naturally on its own” (Hsieh, 2010, p. 152). ndiana University. Published by Elsevier Inc. All rights reserved. http://crossmark.crossref.org/dialog/?doi=10.1016/j.bushor.2017.01.011&domain=pdf http://dx.doi.org/10.1016/j.bushor.2017.01.011 http://www.sciencedirect.com/science/journal/00076813 mailto:[email protected] http://dx.doi.org/10.1016/j.bushor.2017.01.011 396 D.D. Warrick Lou Gerstner, the former chairman of IBM said, “Culture isn’t just one aspect of the game–—it is the game. In the end, an organization is no more than the collective capacity of its people to create value” (Gerstner, 2002, p. 182). Former CEO of Wells Fargo, John Stumpf, made a similar point about the importance of culture when he said, “It’s about the culture. I could leave our strategy on an aeroplane seat and have a competitor read it and it would not make any difference” (Guerrera, 2008). Later in this article, we will see how even in cases like Wells Fargo (where culture is highly valued), leadership decisions that are not carefully considered in terms of the cultural implications can override the intended culture. Even if leaders recognize the importance of cul- ture, they are unlikely to be aware of the research indicating the significant role culture can play in an organization’s success or failure, or they do not have the training or knowledge of what it takes to build successful cultures. Because of this, the close relationship between leading and managing an organization well and achieving a winning culture escapes many leaders. It is the purpose of this article to help leaders develop a better understand- ing of culture, the advantages of having healthy cultures, the costs of having unhealthy cultures, and what is involved in building and sustaining strong cultures. 2. Understanding organizational culture Many definitions are available to describe cul- ture. Formally, culture can be defined as “the [predominant] beliefs, values, attitudes, behaviors, and practices that are characteristic of a group of people” (Warrick, 2015, p. 4). In defining culture, Edgar Schein, a leading authority in the study of organizational culture, uses the word group to de- scribe social units of all sizes (Schein, 1992). In other words, the term group could pertain to a whole organization or any group of people of any size such as a country, sports team, symphony, or family. The point is that groups of people, regard- less of group size, are likely to form specific cul- tures. Organization researchers typically use the term organizational culture in a broad sense to refer to the culture of a whole organization or any unit of people working together within the organization. In practical terms, organizational culture de- scribes the environment in which people work and the influence it has on how they think, act, and experience work (Warrick, Milliman, & Ferguson, 2016). Cultures can differ significantly within and between organizations. They can bring out the best in people and create excellent environments for people to work in or they can bring out the worst in people and create dysfunctional environments filled with stress and tension. 3. The impact of organizational culture on performance and other factors Especially in the late 1980s and thereafter, studies on organizational culture began to provide convinc- ing evidence that culture can have a significant influence on performance, morale, job satisfaction, employee engagement and loyalty, employee atti- tudes and motivation, turnover, commitment to the organization, and efforts to attract and retain talented employees (e.g., Denison, 1990; Fisher, 2000; Marcoulides & Heck, 1993; Rollins & Roberts, 1998; Weiner, 1988). One study in particular began to catch the atten- tion of leaders. John Kotter and James Heskett (1992) published an 11-year evaluation of company cultures. They found that over an 11-year period, companies with healthy cultures had a 682% average increase in sales versus 166% for comparable com- panies without such healthy cultures. Similarly, Kotter and Heskett found that these companies with healthy cultures saw stock increases of 901% versus 74% for comparable companies. Since then, other studies have identified the characteristics of high and low performance cultures (see Daft, 2015; Kilmann, Saxton, & Serpa, 1985; Lussier & Achua, 2016; Rosenthal & Masarech, 2003; Weiss, 2011). A summary of common themes from these studies is shown in Table 1. What becomes evident in studying the themes is that, to a large degree, healthy cultures are the result of effective leadership and management whereas unhealthy cultures are the result of ineffective leadership and management. 4. Is culture primarily the cause or result of organization practices? Some culture experts believe that culture is the cure for many organizational problems. In this view, the main remedy for problems at General Motors, the Veterans Administration, the government, and many other organizations is to fix the culture. Others believe that culture is the result of organi- zational practices and an outcome rather than a cause. Among these are Lorsch and McTague (2016, p. 98), who proposed that “cultural change is what you get after you’ve put new processes or Table 1. Characteristics of high and low performance cultures High Performance Cultures Low Performance Cultures Leaders are skilled, admired, and build organizations that excel at results and at taking excellent care of their people and their customers Leaders provide minimal leadership, are not trusted and admired, and do little to engage and involve their people Clear and compelling vision, mission, goals, and strategy Vision, mission, goals, and strategy are unclear, not compelling, not used, or do not exist Core values drive the culture and are used in decision making Core values are unclear, not compelling, not used, or do not exist Committed to excellence, ethics, and doing things right Lack of commitment to excellence, questionable ethics, and a reputation for doing what is expedient rather than what is right Clear roles, responsibilities, and success criteria, and strong commitment to engaging, empowering, and developing people Unclear roles and responsibilities and little interest in fully utilizing and developing the capabilities and potential of people Positive, can-do work environment Negative, tense, stressful, and/or resistant work environment Open, candid, straightforward, and transparent communication Guarded communication, reluctance to be open and straightforward, and consequences for saying things leaders do not want to hear Teamwork, collaboration, and involvement are the norm Top-down decision making with minimal teamwork, collaboration, and involvement Emphasis on constant improvement and state-of-the-art knowledge and practices Slow to make needed improvements and behind times in knowledge and practices Willingness to change, adapt, learn from successes and mistakes, take reasonable risk, and try new things Poorly planned change, resistance to change, minimal learning from successes and mistakes, and either risk averse or risk foolish Source: Adapted from Warrick (2016) What leaders need to know about organizational culture 397 structures in place to tackle tough business challenges like reworking an outdated strategy or business model. The culture evolves as you do that important work.” Each stance presented above possesses an ele- ment of truth, in both that culture significantly affects how an organization is run and organization practices significantly affect organizational cul- ture. In other words, both are important, both affect the other, and both need attention to achieve the best results. Strong cultures cannot be achieved without running an organization well and running an organization well requires efforts on the part of leaders in building and sustaining culture. 5. Insights about culture of which leaders need to be aware For leaders to sort through and make sense of the many culture articles and books could be a daunt- ing, complex, and at times confusing process. Therefore, an effort is made here to summarize some of the consistent findings about organizational culture of which leaders need to be aware. The point of making leaders aware of the many factors that can influence culture is not to preoccupy them with concerns about culture but rather to make them better informed and discerning about key factors and decisions that can either build and sustain culture or adversely affect it. 5.1. The influence of leaders in shaping culture Although many factors influence culture, organiza- tional cultures primarily reflect their leaders. Lead- ers influence culture through their strategies, practices, values, leadership style, and example (Steers & Shim, 2013). The impact of leaders on culture is particularly influential at the top level. Tony Hsieh was the primary architect of the Zappos culture (Warrick et al., 2016). Jeff Immelt was able to make significant changes in the culture of IBM (Brady, 2005). Tim Cook has reinforced the positive aspects of the Apple culture and has made changes that have improved the Apple culture (Tyrangiel, 2012). Although culture is often thought to be resistant to change, Alan Mulally was able to change the culture of a struggling Ford Motor Company and 398 D.D. Warrick transform the performance of Ford in a relatively short time span (Hoffman, 2012). The examples mentioned above are positive examples of a leader’s influence on culture. However, it should be pointed out that leaders can also create unhealthy cultures. An ineffective leader, a leader who is not a good fit for a desired culture, or even a good leader who makes bad decisions that impact an organization’s culture can tear down or damage a culture that took decades to build. 5.2. Dominant cultures and subcultures When using the term organization to describe the whole of a company or institution, it is important to recognize that while organizations are likely to have an overriding dominant culture that defines them, they are also likely to have a number of subcultures in various parts of the organization that stray from the dominant culture (Martin & Meyerson, 1988). The dominant culture at Southwest Airlines encourages employees to coop- erate with one another, take great care of custom- ers, and have fun. However, within Southwest Airlines there are likely to be some departments or teams where the culture differs from the dominant culture. Fortunately, even in unhealthy dominant cultures, there may be pockets of excel- lence where there are healthy cultures. 5.3. Visible and invisible factors that define culture Culture can be viewed on two levels (Schein, 1992). There is a visible level that can be observed by artifacts such as dress, office layout, office design, and emphasis on technology. Artifacts could also include leadership style, the nature of the work environment, how people are treated, and how decisions are made and get implemented. There is also an invisible level characterized by expressed values, underlying assumptions, and deep beliefs. Expressed values are consciously held convictions, clearly stated or practiced, that influence the behavior of group members. For example, the expressed values of the U.S. Army are loyalty, duty, and selfless service (Crandall, 2007). These values influence the behavior of soldiers at all levels. Another example may be the expressed value: “It is important to take great care of our people and our customers.” This sentiment will create a different culture than that of an organization with the dominant value: “What we really care about is maximizing bottom line results, no matter what it takes to get there.” 5.4. The impact of traditions and group dynamics Leaders need to know the past and present history of the groups they lead. Group histories will provide insight into the traditions and dynamics that should be sustained and those that need to change. Tradi- tions are practices that have become common to a group over a period of time. A group, for example, may have a history of great teamwork, group in- volvement in the decision making process, high- level performance, and strong group loyalty. On the other hand, a group might have a history of minimal teamwork, leader-driven decision making with little team involvement, and satisfaction with good but not great performance. The dynamics of a group describe its interactions and practices in terms of how people relate and get things done. Groups may be very cohesive and work well togeth- er to get tasks done effectively and efficiently. However, they may also be characterized by a number of dysfunctional or ineffective dynamics. 5.5. Key internal and external circumstances that may influence culture There are a number of internal and external circum- stances that can affect culture. Internal circum- stances could include such things as organizational structures, processes, systems, budgets, and lead- ership styles; as well as changes in leadership, team members, budgets, or other key internal decisions. External circumstances could include situations such as an economic recession, government regu- lations, major lawsuits that damage the reputation or resources of a group, acquisition by another company, or an unexpected catastrophe. 5.6. Valued and devalued behaviors The types of behaviors that are valued and devalued influence the shaping of an organizational culture significantly. People respond to behaviors, good or bad, that are valued and rewarded, while they avoid behaviors that are not valued or rewarded or are devalued. Understanding this makes it important for leaders to be discerning about the desired be- haviors and the behaviors they are actually moti- vating in their subordinates. For some leaders, a careful examination of the reward system may reveal that rewarded behaviors encourage self- serving actions and discourage teamwork or that going the extra mile goes unnoticed or unrewarded. An example of how leadership decisions can have a significant impact on culture involves the high- profile Wells Fargo case. CEO John Stumpf allowed What leaders need to know about organizational culture 399 the company to become overly sales oriented, and a focus on incentives resulted in aggressive tactics to meet sales targets. Over a 5-year period, 2+ million accounts were opened without customer authoriza- tion by employees who were willing to practice unethical behavior to benefit from the sales incen- tives. Once the practices were uncovered, Stumpf announced a number of actions and remedies to address the issues; however the consequences have been far reaching. Wells Fargo was fined $185 million by the Consumer Financial Protection Bureau (CFPB) and Stumpf forfeited over $41 million in unvested equity awards and resigned. Clearly, it is important for leaders to evaluate the perfor- mance management and reward systems as well as their own decisions to ensure that these are aligned with the desired culture. 5.7. Influential members One or more influential group members can have a significant positive or negative influence on the culture of a group. There are group members who bring out the best in others and contribute to a positive work environment and there are those who impact groups in negative ways. At the wound center of a major medical center that I am familiar with, Fridays are called “Valentino days” by the staff. This is because on Fridays, Dr. Valentino is there and he is known for treating all of the nurses and staff like valued team members and for being caring and uplifting. Wouldn’t we all like to be known for creating Valentino days? Understanding the impact that influential people can have on culture makes it important for leaders to carefully select the right people who are a fit with the desired culture and to correct or deal with behaviors that undermine the culture of groups. 5.8. Strong cultures and weak cultures The term strong culture describes cultures that have a significant influence on the behaviors and practices of employees. In strong cultures, there is a clear understanding of what the cultural values and norms are. The term weak culture is used to describe cultures where the norms and practices are not well known or are confusing, inconsistent, or not reinforced. Weak cultures are difficult to work in because expectations are unclear and there is little consistency in practices throughout the organization. Strong cultures are generally associated with much higher performance than weak cultures (Jin, Drozdenko, & DeLoughy, 2013; Mushtaq, Ahmad, & Tanveer, 2013). An exception to this occurs when the culture is strong but unhealthy. In addition to observing the strength of the culture, leaders need to be observant of the types of behaviors and attitudes a culture is driving and whether they are desirable or undesirable. 5.9. Understanding international cultural differences With the existence of myriad multinational orga- nizations, so many leaders involved in international business, and virtual teams with members from around the world, taking into account international cultural differences is becoming increasingly impor- tant for the success of organizations. Imposing one’s own cultural values and practices may not be suc- cessful in cultures that have a history of doing things differently. Euro Disney experienced substantial losses in its first 2 years of operation at least partially due to a lack of understanding of cultural differences in Europe. To begin with, the name Euro Disney turned out to be a hindrance, as Europeans associated “Euro” with the continental money unit rather than a coverall term for European. As a result, the amusement park’s name essentially translated as “Dollar Disney.” Disney also ignored the necessity to provide kennels in a culture where people often travel with dogs, creating problems for potential guests. Another issue arose in cultural dining differences, as Disney’s plastic utensils failed to impress guests who take great pride in the culinary experience. The key for leaders, just as would be the case in understanding different domestic cultures, is to take the time to learn as much as possible about the cultures they are dealing with and to involve those who have a good understanding of the culture in making decisions where culture could be an issue. McDonald’s restaurants operate in more than 100 countries. While McDonald’s headquarters is U.S.-based, the company entrusts local operations to managers from the countries in which they operate. 5.10. The vulnerability of culture Cultures are like precious and prized treasures when they are strong, healthy, and driving the right behaviors. They are among the greatest assets an organization can have. However, they are vulnera- ble assets that can be damaged or lost if leaders are not aware of their value and are not keeping watch over possible culture-changing practices, attitudes, threats, or events. There are many variables that can impact culture and may need to be dealt with and managed to avoid possible cultural damage. For example, Table 2. Guidelines for building and sustaining cultures 1. Make strategy and culture important leadership priorities 2. Develop a clear understanding of the present culture 3. Identify, communicate, educate, and engage employees in the cultural ideals 4. Role model desired behaviors 5. Recruit and develop for culture 6. Align for consistency between strategy and culture 7. Recognize and reward desired behaviors and practices 8. Use symbols, ceremonies, socialization, and stories to reinforce culture 9. Appoint a culture team 10. Monitor and manage the culture 400 D.D. Warrick changes in culture can occur because of budget cuts, rapid market changes, economic downturns, natural disasters, compromises in adhering to core values, and especially changes in ownership, lead- ership, or leadership practices. It will be interesting to see if changes will occur in the well-documented and acclaimed culture of Zappos now that the primary architect of the culture, Tony Hsieh, has introduced Holacracy (a self-management organi- zational system marketed by HolacracyOne). Holac- racy is essentially a boss-less, self-managed form of organization design. The Wall Street Journal (Silverman, 2015) reported that since the introduc- tion of Holacracy, Zappos said that about 14% of its roughly 1,500 employees decided to leave because the new organizational system was not for them. Previously, Zappos had been known for exception- ally low turnover. 5.11. Successes and Challenges In general, success is likely to unite and instill pride in a group and make a culture stronger. Therefore, celebrating and communicating successes can build culture. While success typically strengthens cul- ture, leaders need to be sensitive to the impact of success as it could also lead to complacency, overconfidence, and possible erosion of positive cultural norms. Marginal or declining results tend to undermine positive cultural norms. During chal- lenging times, it is important for leaders to make efforts to maintain strong cultural norms and to turn difficulties into opportunities. For observant lead- ers, difficulties, setbacks, and challenges can be used to unite and build culture as people rally and bond together to face the challenges. 6. Guidelines for building and sustaining organizational cultures Culture can be built by design or default. In other words, culture can either be built in a purposeful way or left to chance. Leaders play a key role in building and sustaining cultures. To build culture by design takes intelligent and focused work. CEOs such as Bill Gates of Microsoft, Herb Kelleher (for- merly) of Southwest Airlines, and Jeff Bezos of Amazon have all been known for their emphasis on culture and willingness to take specific culture-building actions. Often, other leaders mistakenly think that by talking a lot about culture, posting cultural values on walls, passing out books on culture, and placing cultural values on coffee mugs, the desired culture will happen. There are also leaders who pay little attention to culture and may do so at a high cost. While there are many payoffs and advantages to having a healthy, high-performance culture, there are also many potential costs to neglecting culture or having a less than desirable culture. It is estimated that 60% of all mergers fail to achieve their anticipated goals or fail altogether because of cultural differences that were not dealt with (Hellriegel & Slocum, 2011). Unhealthy cultures are also likely to have a negative impact on many other factors such as performance, morale, motivation, teamwork, cus- tomer relations, service, and loyalty. In some cases, unhealthy cultures have been a significant contrib- utor to the failure of organizations. Table 2 summa- rizes 10 guidelines leaders can use in building and sustaining organizational cultures. 6.1. Make strategy and culture important leadership priorities Leaders throughout an organization need to under- stand the importance of strategy and culture in building a successful organization and to make both a top priority in their decision making and practices. It is especially important for the top level leader to set the example for making strategy and culture important. The vision, mission, core values, design, plans, systems, and processes of an organization, along with the practices and decisions of leaders, begin to shape the culture. The more leaders are able to create strategies that achieve the desired results while also creating a great place to work and conduct business, the more likely that a healthy culture will be the result. A poorly run organization will not result in a healthy and vibrant culture no matter how much the leaders may talk about the What leaders need to know about organizational culture 401 importance of culture and spend time trying to build a healthy culture. It is also important for leaders to identify the type of culture that is likely to achieve the best results and to ensure that the strategy and desired culture are aligned to reinforce and strengthen one another. Culture can be defined by core values or by identifying cultural ideals. Zappos defined the desired culture through its core values (Hsieh, 2010, p. 154), which are: 1. Deliver Wow Through Service 2. Embrace and Drive Change 3. Create Fun and a Little Weirdness 4. Be Adventurous, Creative, and Open-Minded 5. Pursue Growth and Learning 6. Build Open and Honest Relationships 7. Build a Positive Team and Family Spirit 8. Do More with Less 9. Be Passionate and Determined 10. Be Humble Zappos recruits people with these values in mind, trains all employees on the values, and uses the values in decision making. Culture can also be defined by identifying cultural ideals such as: de- veloping knowledgeable and empowered employ- ees at all levels; decentralizing decision making; emphasizing collaboration, cooperation, and team- work in getting things done; striving for simplicity in how things get done; and encouraging open, candid, two-way communication. Walt Disney was a master at creating a winning strategy and making the Disney culture a high pri- ority. The wholesome family values that he es- poused and even the job titles that he used, renaming engineers “imagineers,” helped shape the Disney culture that, along with a winning strat- egy, has made the Disney organization so successful (Dumaine, 1990). 6.2. Develop a clear understanding of the present culture In building culture, leaders need to understand the present culture so the strengths can be reinforced and any weaknesses, inconsistencies, and gaps be- tween the desired culture and the present culture can be identified and addressed. There are many ways to develop an understanding of the present culture. Certainly observing and experiencing the culture can provide insights. There may also be available information regarding the present or desired culture. Another option can be to use stan- dardized culture questionnaires, create question- naires to fit the cultural ideals, or interview a cross- section of people or focus groups regarding how they view the culture or culture changes. There are many questionnaires available for evaluating cul- ture. One of the best researched questionnaires is the Denison Organizational Culture Survey (Denison & Neale, 1996). In groups such as companies with numerous departments, it may be helpful to evalu- ate the overall dominant culture of the company as well as the culture of each department. 6.3. Identify, communicate, educate, and engage employees in the cultural ideals To build a strong culture purposely, the … 159 the three legged system of organisational integrity Gyula PuLAya,* a) Miskolc University, Hungary and State Audit Office of Hungary Please cite this article as: Article History: Pulay, G., 2017. The three legged system of organisational integrity. Review of Economic Studies and Research Virgil Madgearu, 10(2), pp.159-175. doi: 10.24193/RvM.2017.10.14. Received: 30 August 2017 Accepted: 30 October 2017 Abstract: Public organisation with mature integrity systems are resistant to the misconduct of their own employees, such as corruption and other misuses of public property. This article argues that legality, legitimacy and legacy are the three legs of a solid system of organisational integrity. Legality since compliance with the legal rules is the precondition of integrity. Organisations moving from legality to legitimacy build their inner regulations on the values and basic principle of the laws and not on their specific provisions only. Organisations with integrity try to leave legacy to their successors, valuable fortune to the future generation, they try to fulfil their mission and help their employees to realize their vocation. The endeavour to go beyond legality to legitimacy and create legacy helps organisations to exceed the level of compliance and reach the level of integrity. Key words: management control; corruption prevention; integrity JEL Classification: H830; K4; K420 © 2017 Alma Mater Publishing House. All rights reserved. * Corresponding author. E-mail address: [email protected] 160 Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2) Corruption is a serious problem in each of the Central and Eastern European countries. Therefore these countries have to find effective tools for fighting against corruption. The traditional way for doing so is the reinforcement of the authorities responsible for the fight. It covers several measures, e.g. capacity building of the police departments and prosecutor offices, tightening the punishment of corruption offences and increasing the penalties of corruption related crimes. One of the outstanding example of this approach was the establishment of the National Anticorruption Prosecutor’s Office in Romania in 2001. Another approach tries to prevent corruption by encouraging integrity at all level of the society. This approach was followed by the State Audit Office of Hungary (SAO) when it launched its Integrity Project in 2009. ‘Mapping Corruption Risks – Promotion of an Integrity-Based Culture of Public Administration’ was the title of the project. The aim of the article is to describe the theoretical background of a sound integrity management system which is an effective tool of corruption prevention. The first chapter of the article compares the traditional and the integrity- oriented approach of the fight against corruption, highlighting the advantages of the integrity approach. The second chapter briefly expounds Ouchi’s famous theory on the three types of controls, arguing that clan-control is the antecedent of the integrity-oriented control. The third chapter explicate the mechanism by which organisational culture influences the behaviour of the members of the organisation. The fourth chapter explains the relationship between the culture of compliance and the culture of integrity. The fifth chapter argues that a sound integrity management system should be based on three basic principles: on legality, legitimacy and legacy. 1. organisational integrity as a tool of preventing corruption The word ‘integrity’ originates from the Latin expression in-tangere, which means “intact” or “untouched”. In other words, the term designates someone or something unblemished, inviolate and beyond reproach; in addition, it alludes to virtue, incorruptibility and the condition of purity. According to another view the root of integrity is the Latin “integer” adjective, which means “whole” or “entire”. The concept of integrity is used to describe both people and organisations. The term “integrity” as a basic characteristic of an ethical personality has been used by the human sciences for ages. Integrity usually refers to a quality of a person’s character, and any person said to be acting with integrity is usually being honest and trustworthy. Individuals with strong integrity do what they think is right regardless of the consequences attached to their decisions or is perhaps making a personal sacrifice for the greater good. Integrity is the opposite of lying, 161 Pulay, The Three Legged System of Organisational Integrity deceiving others for personal gain. Integrity means doing the right thing at all times and in all circumstances, whether or not anyone is watching. It takes having the courage to do the right thing, no matter what the consequences will be. Organisational integrity means that the operation of an organisation is in adherence to the rules applicable to it and to the values and principles defined by or for it. In the sense of organisational management, integrity means that an organisation has a positive, sound set of values that are in line with social expectations and it works in accordance with these values. The latter presupposes that the employees also identify themselves with the organisation’s values and act accordingly. In this sense integrity is a synonym for correct (compliant, ethical) employee behaviour. Consequently, integrity is the exact opposite of incorrect employee behaviour, like fraud, corruption and any kind of abuse of official power. This is the point where integrity and the fight against corruption come together since the higher level of integrity an organisation has, the more resistant it is to corruption. Consequently, the strengthening of an organisation’s integrity is an important tool for preventing and mitigating risks of corruption. Table 1 summarises the differences between the traditional approach to the fight against corruption – which is aimed at detecting specific cases of corruption by the reinforcement of the authorities – and the approach that focuses on organisational integrity. The first important difference – reflected by the first two rows of Table 1 – is that the integrity-oriented approach is aimed at the detection of corruption risks and not the corruption itself, and tries to prevent corruption by the efficient management of the identified corruption risks. The second important difference is reflected by the third and fourth rows of Table 1. They reveal a new theatre of the war against corruption, it is the organisation. The fight against corruption is shifted from the national level to the level of individual public organisations. This can improve the effectiveness of the fight significantly, since it is not only a single authority that combats a multitude of unknown perpetrators but thousands of public institutions take up the fight against corruption. In this approach, the leaders of the many thousands of public institutions are expected to develop a sound system of integrity controls in order to strengthen the organisations’ resilience to corruption. Reflected by the fifth row of Table 1 the integrity oriented approach has its own weapons for fighting against corruption. They are different from the weaponry of the traditional approach. Its armour contains the integrity controls. They are means of managing integrity risks, including policies, procedures, guidelines, practices or organizational structures, which can be of an administrative, technical, management, or legal nature. 162 Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2) Table 1. Main features of the traditional and the integrity-oriented approach to the fight against corruption Features Traditional approach Integrity-oriented approach Subject of the fight Corruption itself Risk of corruption Purpose of the fight Disclosure of corruption Prevention of corruption Scene of the fight The entire country The organisation Main warriors of the fight Public authorities Leaders of the organisation Armor of the fight Legislation, investigation, retaliation Integrity controls Results of the fight Disclosure of corruption, sanctions Strengthening the organisation’s ability to resist corruption Source: Own representation after Pulay, 2014, p. 140. The last row of Table 1 makes clear why integrity can be an effective safeguard against corruption. The traditional approach deals with indi- vidual cases and ties to disclosure corruption related crimes one by one. The integrity oriented approach tries to make the whole organisation resistant against many risks of corruption at all levels of the organisation. This article describes the ways and means by organisational integrity effectively defend the organisation against the threats of corruption. 2. From clan-control to the culture of integrity The term clan-control was introduced by William G. Ouchi in his famous article “Markets, Bureaucracies and Clans” (Ouchi, 1980). Market, bureaucracy and clan are the three modes of controls distinguished by Ouchi. He argued that the market control – which is the basic control mechanisms in a market economy – often fails, due to the fact that the market transactions are too complex. They involve long-term obligations. Theoretically contingent claim contracts can deal with future obligations, but when future is either complex or uncertain or both then it is impossible to specify a contract which takes into consideration the future options completely. This failure of the market control cries for bureaucratic solutions when contractual solutions are replaced by rules. Ouchi underlines two principal advantages of the bureautic control compared to the market control. First, bureautic control is applied between the employer and the employees. In the employment relationship employees in exchange of receiving wages 163 Pulay, The Three Legged System of Organisational Integrity accept the employer’s right to direct their daily activities (within the frame of the employment contract), and closely monitor it. In the employment contract the duties of the employees and the rights of the employer are regulated incompletely, giving room for the employer to regulate the employees’ activities according to circumstances raised after signing the contract. Thus the problem of dealing with future uncertainties is more or less solved. The second principal advantage is even more important from the viewpoint of this article. Organisations can create trust among their members more easily than market can between the parties of a market transaction. Employees of an organisation assume some commonality of purpose, because they learn that their rewards are somehow depending on the performance of the organisation: in long-the long run good performance of the organisation yields for them also. In bureaucratic organisation technical expertise is an important element of the commonality. Bureaucracies appreciate professional standards and behaviour, and professionals meeting these standards are rewarded and promoted by the bureautic organisations. High levels of professionalism becomes a value shared by the members of the organisation and the organisation itself and creates a drive for excellence. In spite of the advantages of the bureautic control compared to market control, it has its own boundaries. Bureautic control uses rules, but rules are relatively weak devices. Any specific problem needs a specific rule. The bureautic control of complex organisation or processes needs enormous number of rules without covering all possible contingencies. Therefore in a quickly changing environment bureautic control fails to respond properly to the changes. The failure of both the market and the bureautic controls turned Ouchi’s attention to a third mode of control. In the 1970s he noticed modern industrial organisations applying social mechanisms which reduced the differences between organisational and individual goals and created a strong sense of community. These organisations were operating typically in technologically advanced industries, where teamwork was common, technologies changed often and therefore individual performance was highly difficult to measure. These were the typical circumstances where both market and bureautic control fail. The social mechanism to these modern industrial organisations reminded Ouchi to the control mechanism of the preindustrial craft organisations where the members of the organisation previously served an apprenticeship during which they were socialized into accepting the objectives of the craft organisation. Based on this experience Ouchi discerned a third mode of control and called it clan- control. This name originates form Durkheim who referred a clan as the case of organic solidarity contrasted to the contractual relations (on which market and bureautic control are based). The solidarity steams from the necessary dependents upon one another which resulted in common goals and cooperation. 164 Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2) The feeling of community is the basis of informal organisations but essential to the smooth operation of every formal organisation as well. Common goals and the feeling of community are effective elements of any control mechanism aimed at meeting of organisational goals and avoiding behaviour destructing them. Ouchi argued that clan-control could be effective in an environment where market control and bureautic control fail. Clan control relies upon creating goal congruence therefore it can work among complex circumstances where performance is excessively ambiguous. Ouchi summarized two main characteristics of the three control modes in a table (see Table 2). Normative requirements refer to the basic social agreements that all members of the transaction network must share in order to the efficient functioning of the network. Reciprocity is a normative requirement for all the three control modes. It reflects the mutual interest of the parties of the transaction which is the basic precondition of voluntary transactions. Legitimate authority is critical both for bureautic and clan-control. In the case of bureautic control it permits the employer to specify the work assignments of the employees and closely monitor their performance. In the case of clan-control legitimate authority is usually part of the tradition, and obedience to the leaders of the clan is strongly encouraged by the tradition. Table 2. An organisational failures framework Mode of control Normative requirements Informational requirements Market Reciprocity Prices Bureaucracy Reciprocity Legitimate authority Rules Clan Reciprocity Legitimate authority Common values and beliefs Traditions Source: Ouchi, 1980, p.137. For market control price-information is needed. Ouchi underlines that very difficult to arrive at correct prices. Rules are relatively crude information devices. There are standards behind the rules but they indicate the value of an output approximately only. Employees perceive them as equitable only as long as they believe that they contain a reasonable amount of performance information. The compliance with rules does not reflect the value of the performance when tasks become unique, integrated or ambiguous for other reasons. From the performance evaluation perspective tradition is the least precise information prerequisite, since they are formulated in a general way. On the other 165 Pulay, The Three Legged System of Organisational Integrity hand, the set of traditions in a formal organisation may produce a unified, although implicit philosophy how that organisation should work. This philosophy is learnt by the employees of the organisation through a long learning (socialisation) process after which they can deduct from it a rule which compasses their appropriate decision-making in any specific cases. It means that long socialisation is a precondition of the efficiency of the clan-control. Taking into consideration the many hindrances of meeting the informational requirements of the proper functioning of the three control modes, it is not surprising that Ouchi was pessimistic about the efficiency of the future control modes. He stated that the “degree of uncertainty and opportunism that characterize American society may be such that no mechanism of control ever function very well” (Ouchi, 1980, p.140). Since the publication of his article three and a half decades have past, during which management sciences developed a lot. They responded the challenges of creating more efficient control mechanisms. Multi-dimension performance management systems were introduced to control the performance of complex organisations as a further development of the market control relying on price-information only. Compliance systems were introduced as new and comprehensive forms of the bureaucratic control. The conscious building of organisational culture tried to replace the traditions prerequisites of the clan-control and creating a control system which is based on the feeling of community and the prevailing values shared by the leaders and the employees of the organisation. Each of the three developments are interesting and instructive. This article focuses on the third one and tries to present the development process leading from clan-control to a control system based on the culture of organisational integrity. 3. From clan-control to organisational culture Traditions can be inherited only by organisations being operated for a long time. The number of organisations characterised by long tradition is limited. Does it mean that the relevance of the clan-control is limited also? Not necessarily. According to Ouchi the essence of clan-control is a unified, although implicit philosophy how that organisation should work, and after a long learning process employees can deduct from it a rule which compasses their appropriate decision-making in any specific cases. Ouchi emphasizes the importance of the long socialisation process during which employees understand traditions and collect experience on its usefulness. We have to raise the questions whether tradition is the only means for creating a unified organisational philosophy and socialisation is the only way for learning. Management science answered to these questions by definite “no”. It argued that top managers can develop an order of values and principles which may become prevailing rules through 166 Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2) the process of internalisation. It starts with learning what the norms are, and then understanding why they are of value or why they make sense, until finally they accept the norm as their own viewpoint. Internalised norms are said to be part of an individual’s personality and may be exhibited by one’s moral actions. Internalisation could be the result of socialisation but it could be speeded up by formal training and explicit education and the involvement of employees in the creation of organisation’s value order and the related documents (e.g. mission statement, code of ethics). The conscious creation of the organisational philosophy does not need organic relationship among the members of the organisation characteristic to the clan-control since the members of the organisation are formed into a community by the goals, values and principles shared by all of them. Therefore clan-control is replaced by something else, namely by organisational culture. What is an organisational culture? Answering to this question we can start with the phenomenon that behaviour of the employees of an organisation is influenced by the organisation itself. Not the formal rules applied by the organisation effect employees’ behaviour only, but the atmosphere, the relationship among the employees, the prevailing management style and many other informal elements of organisational life have an impact on employees’ daily decision making. Sciences try to grasp this phenomenon by the notion of organisational culture. It is an abstract concept, and there are several definitions of it. We follow the concept of Edgar Schein. According to his definition organisational culture “is a pattern of basic assumptions that a given group has invented, or developed in learning to cope with the problems of external adaptation and internal integration, and that have worked well enough to be considered valid, and therefore to be taught to new members as the correct way to perceive, think and feel in relation to those problems” (Schein, 1984, p.3). Schein divided organizational culture into three different levels: y artefacts and creations (symbols), y (espoused) values, y basic (underlying) assumptions. (In brackets you can see the supplements to the original terms added by the author in his later publications.) Artefacts and symbols mark the surface of the organization. They are the visible elements such as logos, architecture, structure, processes or even corporate clothing. They carry important, but sometimes not decipherable messages to the employees and to external parties also. The second level concerns standards, values and rules of conduct, the way by which the organization express strategies, objectives and philosophies and made them public. Problems could arise when values publicized by the organisation 167 Pulay, The Three Legged System of Organisational Integrity are not shared by the managers and employees of the organisation. Therefore Schein put the indicative “espoused” in front of the noun “value”. It that case values represent a greater level of awareness. They are apt to reasoning – in verbal explanation – the behaviour, but usually are not strong enough to really govern the specific decision making of the members of the organisation. In order to really understand how culture does work we have to delve into the underlying assumptions level – emphasizes Schein – since they determine how group members perceive, think and feel. The mechanism of action is the following. Employees try to solve problems by acting in line with the espoused values of the organisation. If actions begin to solve the problem and success is repeated several times then the value is gradually transformed into an underlying assumption that problems could be solved by following the value. As the assumption is taken for granted they become powerful means for controlling behaviour, hence they are less debatable and confrontable than espoused values. Schein argues that as certain motivational and cognitive processes are repeated and continue to work, they become unconscious. Therefore the basic underlying assumptions are deeply embedded in the organizational culture and are experienced as self-evident and unconscious behaviour. Assumptions become patterned into “cultural paradigms”, which tie together the basic assumptions. The cultural paradigm is a set of interrelated assumptions that form a relatively coherent pattern. This pattern is the core of organisational culture which has a decisive role in shaping the behaviour of the employees of the organisation, therefore culture fulfils many control functions. Table 3 summarizes the basic similarities and differences between clan- control and control exercised by creation and reinforcement of organisational culture. Table 3. Comparison between clan-control and control exercised by organisational culture Mode of control Normative requirements Informational requirements Personal requirements Clan Reciprocity, Legitimate authority, Common values and beliefs Traditions Employees, who went through a long socialisation process Organisational culture Reciprocity, Legitimate authority, Espoused values and underlying assumptions Cultural paradigm Employees, who went through an internalisation process Source: Own representation. 168 Review of Economic Studies and Research Virgil Madgearu, 2017, 10(2) Clan-control and the control exercised by organisational culture are very similar to each other as it is reflected by Table 3. However there are two important differences as well. First, contrary to the traditions which are developed by natural processes, cultural paradigm can be created artificially also. Second, personal requirements of the clan control could be met by a long process of socialisation whilst internalisation is expected to be a shorter process. There are plenty of management manuals on how to create an organisational culture containing good advices for shortening of the internalisation process by formal training and many other means. This article does not want to challenge the suggested methods but would like to underline that the creation of culture needs a lot of time. 4. The culture of integrity The reinvention of organisational culture has led to the development of different kinds of cultures. We can speak about the culture of quality, the culture of excellence, the culture of diversity and the culture of integrity. The distinctive sign of the different cultures are the prevailing values of the cultures: each culture is named after the value with the highest priority in the organisational culture. In the organisational culture of integrity the central value is integrity. It means that integrity is a decisive aspect of the character of the organisation and organisation behaves ethically even when this would not be in its own (short term) interest. An organisation can act through its members only, therefore each of the leaders and the employees of the organisation have to follow the ethical values of the organisation in their own decision making. Meeting of this requirement is a great challenge. There are two approaches to get members of the organisation act according to ethical values of the organisation. The first is the compliance approach, the second is integrity. The compliance approach relies on rules. It uses formal and detailed rules and procedures, which try to regulate in every situation how to behave ethically. Typical instruments of this approach include legislation, strict behavioural codes, extensive control mechanisms and control institutions with extensive powers. They are the so called hard controls, applied for directly influence employees’ behaviour. The integrity approach relies on self-control exercised by each individual. Self-control mechanism consists of two components: moral judgment capacity and moral character. Moral judgment capacity can be strengthened by learning and understanding the values, and developing the skills in ethical decision making needed to apply those values in the daily practice. Ethical decisions making skills can be improved by ambitious code of ethics, workshops on ethical dilemmas, interactive trainings and several other means. Moral character is the instinctive 169 Pulay, The Three Legged System of Organisational Integrity motivation of the person to act upon ethical values, and aptitude, fortitude and hardihood to act upon them resisting to tempting offers. Organisations pursuing integrity try to select employees with solid morality. Because of its instinctive nature moral character is very difficult but not impossible to change. Organisational culture might have a very important role in strengthening its members’ moral character. Organisations creating a feeling of community, empowering and respecting their employees motivate them to voluntarily adopt organisation’s values as their own. values would be followed by the employees because they belong to a community which enhances their self-esteem. The respect increases self-respect. If you are respected by the community and by your leader for being competent, true, trustworthy and honest, then you try to be competent, true, trustworthy and honest. The special control devices for integrity management are the so called soft controls, aimed at influencing employees’ motivation, loyalty, integrity, inspiration, standards and values. They influence employees’ behaviour indirectly through their convictions and attitudes, as you can see in Figure 1. Figure 1. The effect of hard and soft controls on employees’ behaviour 1 Hard controls Employees’ Behaviour Values Attitudes Aspirations Endeavours Soft controls Source: Own representation. There are many reasons why one might behave ethically. For example, there might be a threat of punishment, or a promise of a reward, to keep one in line. But following one’s self-interest in this way, even if it results in ethical behaviour, is not integrity. Integrity is an aspect of character that leads the person to develop deeply-held ethical commitments and to act on them consistently. People with integrity will, therefore, tend to behave ethically not only when it is in their own interest, narrowly construed, to do so, but also when it is not. Empirical studies (Tyler et al., 2008) show that an organizational culture that encourages ethical conduct usually not emphasizing the fear for punishment but rather a focus on fairness. It is the commitment to …